Spooky myths to dispel about recipients of down payment assistance

Updated: Dec 28, 2021

Halloween is right around the corner and so, in the spirit of spooky season, we thought we’d dispel some terrifyingly common myths about recipients of down payment assistance. We hope that other industry professionals follow suit and actively lay these myths to rest (in a coffin).

The first myth is that receiving down payment assistance makes a potential home buyer higher risk.

For many low- and moderate-income individuals, the most significant barrier to homeownership is the down payment and closing costs associated with purchasing a home. – FDIC.gov. For that reason, down payment assistance is an important topic within the housing industry. The term “assistance” in down payment assistance could lead some sellers to view buyers with layered financing as higher risk. However, recipients of down payment assistance do not necessarily signal buyer weakness.

These programs have strict qualification guidelines and requirements including homebuyer education courses that must be completed. Additionally, recipients of DPA could also be utilizing this program in order to spare their savings rather than using it all for a down payment. For this reason, sellers could actually view buyers that have DPA as coming to the table with extra funds to negotiate with. Some programs even cover closing costs and other seller-paid costs, which would allow the seller to benefit even more.

These programs have slower closing periods.

A common misconception is that down payment assistance programs have slower closing periods. Generally, though, there isn’t any added time in the underwriting process simply because the loan is for down payment assistance. The loan is usually processed at the same time as the primary mortgage.

Lenders and real estate agents should ensure their buyer has all the necessary paperwork completed promptly in order to allow for smooth processing. They should also leverage DPA provider’s expertise to keep the buyer informed about the steps needed to complete the program, ensuring good communication in order to meet timeline expectations.

Down payment assistance through government programs is riskier than assistance in the form of a gift from a relative.

Government led down payment assistance programs generally perform better than gifts from relatives. In fact, according to the latest FHA SF Loan Performance Trends as of August 2021, produced by HUD, government down payment assistance outperforms down payment assistance provided by gifts from relatives by more than a full percentage point.

Bottom line

These myths and common misconceptions need to be addressed if there is any hope to close the homeownership gap amongst low-to-moderate and underserved individuals. Down payment assistance programs can be a responsible way to achieve homeownership since most providers follow strict qualification guidelines and require homebuyer education courses and counseling to help recipients sustain homeownership.